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Steer prices are expected to build on the record high $114.73 per hundredweight average set last year. Estimates for the five-area steer prices(Texas/Oklahoma/New Mexico; Kansas; Nebraska; Colorado; Iowa/Minnesota feedlots) put 2012 numbers at $121 to $129 per hundredweight.

Shagam said with fed cattle supplies continuing to shrink, prices “are expected to continue to climb. Tighter beef supplies are expected to be reflected in the increase in retail beef prices,” he said. “However, resistance to high beef prices may limit gains in both wholesale (and) retail prices in 2012. Retail choice beef prices are expected to average slightly above $5 compared to $4.83 per pound last year.”

Shagam said the U.S. cattle herd declined for the fifth straight year in 2011. “USDA’s January cattle report estimated the number of cattle and calves January 1, 2012, fell about 2 percent to 90.8 million head. The cow herd was estimated at 39.1 million head, over 2 percent below a year earlier.

“The 2011 calf crop was estimated at 35.3 million head, the smallest since 1950.” He expects the herd to shrink even more during 2012. “Cow-calf operators will have to decide whether to sell heifers at what are expected to be record prices in 2012 or hold them back for breeding, with a return on their calves in two to three years.”

He said those decisions will determine the speed of the sector’s recovery. “Beef cow numbers are the lowest since 1962, and although producers indicated they are holding 1 percent more heifers for addition to the beef breeding herd, expected reductions in the dairy herd may, at best, keep the cow herd close to this year’s level. With a smaller cow herd at the beginning of the year and only a small increase in number of heifers expected to calve during 2012, a further decline in the calf crop can be expected.”

That means even tighter cattle supplies going into 2013. Shagam doesn’t expect calf supplies will support an increase in beef production before 2014 or 2015.

Cattle on feed numbers increased only slightly in the January 1, 2012, report, estimated at 14.1 million head. Poor forage conditions in the southern plains and northern Mexico, in addition to record feeder calf prices, “resulted in higher placements.”

Shagam expects commercial beef production to decline about 4 percent in 2012 to about 25.1 billion pounds. “Steer and heifer slaughter is the first half of 2012 is expected to be above 2011 as the large number of relatively light-weight cattle placed in mid-2011 are marketed,” he said. Afterward, marketings and slaughter should decline sharply from last year. Cow slaughter also should decline as beef liquidation moderates, but declines in dairy inventories , based on weak returns, likely will offset a “small portion of the decline in beef cow slaughter. Total commercial cattle slaughter during 2012 is expected to decline almost 5 percent.”